The purchase or sale of real estate in Cyprus presents various tax aspects that both individuals and corporate investors need to understand. Cyprus offers a unique landscape of tax incentives and obligations that can significantly affect the overall cost and potential returns of a real estate transaction. In this guide, we explore each major tax applicable during property transactions, providing a thorough explanation of when and how each tax applies, who is eligible for certain exemptions and practical examples to clarify these financial implications.
This guide is structured to look at property taxes in a way that helps both buyers and sellers, whether they are individuals seeking a primary residence or companies targeting investment. Our legal expertise at Polycarpos Philippou & Associates LLC allows us to provide you with the clarity you need to make informed decisions and maximize the tax efficiency of your real estate investments.
Value Added Tax (VAT) on Property Purchases in Cyprus
One of the most important tax factors when buying a new property in Cyprus is the Value Added Tax (VAT). VAT is applied at a rate of 19% on new properties – however, Cyprus legislation also provides for a favourable reduced VAT rate of 5% for main residences, subject to certain conditions.
When VAT Applies and When It Does Not
VAT is generally levied on newly built properties or on properties sold for the first time. In cases where the property is a resale property or where planning permission was granted before 1 May 2004, VAT does not apply – instead, in these cases the buyer will be charged transfer fees (see below).
Reduced VAT Rate – Eligibility and Conditions
Cyprus legislation provides for a reduced VAT rate of 5% for first homes, provided that certain criteria are met:
- Intended Use: The property must serve as the buyer’s primary and permanent residence in Cyprus.
- Age and Ownership Restrictions: Only individuals (not an legal entity, i.e. company) over 18 qualify, and this rate is available to individuals who have not previously purchased a property in Cyprus under the reduced VAT.
- Value and Size Limitations: The reduced rate applies to the first €350,000 of the property’s value, and only if the total value does not exceed €475,000. Additionally, it applies to the first 130 sq.m. of the property’s area, provided the total covered area is below 190 sq.m.
It is noted that for properties with planning permits issued until 31 October 2023, the reduced VAT rate of 5% applies to the first 200 sq.m., regardless of the total area or value of the property, if the purchase is completed as a first residence by 15 June 2026.
Property Type | VAT Rate | Conditions |
New Property | 19% | Applied if property is purchased for the first time after construction |
Primary Residence (Individual) | 5% | Property must be primary residence, max area 190 sq.m., max value €475,000 |
Resale (Secondary Market) | Exempt | VAT exempt, but Transfer Fees apply |
Planning permit issued before May 1, 2004 | Exempt | VAT exempt, but Transfer Fees apply |
Corporate Purchase | 19% | Companies do not qualify for the reduced VAT rate |
Examples of VAT Applications
Let’s illustrate how these VAT rates might apply in real-world scenarios:
- Primary Residence Purchase by an Individual: Suppose an individual purchases an apartment of 100 sq.m. valued at €300,000. Provided all conditions are met, the entire purchase may qualify for the 5% VAT rate.
- Property Exceeding Limits: A villa of 300 sq.m. valued at €600,000, regardless of its intended use, would not qualify for the reduced VAT and would incur the full 19% rate.
- Corporate Buyers: VAT exemptions and reduced rates are only applicable to individuals; therefore, companies purchasing property are subject to the standard 19% VAT rate without exception.
Impact of Selling Within 10 Years
Should a buyer who has benefited from the reduced VAT rate decide to sell or lease the property within 10 years of purchase, they must inform the VAT Department within 30 days and repay a portion of the VAT savings. This repayment is calculated proportionally based on the time remaining from the original 10-year period.
Example: An apartment purchased for €300,000 with a 5% VAT is sold after five years. The seller would repay 14% VAT (the difference between standard and reduced rates) for the remaining five years.
For more information on the imposition of Value Added Tax on the purchase of property in Cyprus click here.
Transfer Fees
Transfer fees are paid by the buyer for the registration of the purchased property, and apply when the title deed of a property is transferred to the buyer. The Transfer Fees are only payable when we have resale properties, and are not payable if the transfer is a transaction subject to VAT (either at the standard or reduced VAT rate).
How Transfer Fees Are Calculated
The Transfer Fee rate depends on the property’s value and is applied progressively as follows:
Property Value (€) | Transfer Fee Rate (%) |
Up to €85,000 | 3% |
€85,001 – €170,000 | 5% |
Above €170,000 | 8% |
It is noted that transfer fees for Cypriot properties are calculated on the basis of the market value of the property on the date of purchase. This assumes that the sales contract has been filed with the Department of Land and Surveys. If the contract of sale has not been deposited with the Department of Land and Surveys, the transfer fees are calculated on the basis of the assessed value of the property on the date of transfer.
Also note that Transfer Fees are reduced by 50% in case the transaction is not subject to VAT (such as resale properties). This makes buying a resale property an attractive option for those looking for lower transaction costs.
Examples of Transfer Fee Calculations
- Single Purchase: For a property valued at €600,000, the Transfer Fee would typically be calculated as follows:
- €85,000 x 3% + €85,000 x 5% + €430,000 x 8% = €20,600.
Property Value Bracket (€) | Rate (%) | Fee (€) |
Up to €85,000 | 1.5% | €1,275 |
€85,001 – €170,000 | 2.5% | €2,125 |
Above €170,000 | 4% | €17,200 |
Total Transfer Fee | €20,600 |
- Joint Ownership: If the property is in joint names (e.g., a couple – husband and wife or two individuals), then the purchase is divided into two parts, which result in a reduced Transfer Fee.
Stamp Duty
When buying property in Cyprus, the buyer typically pays (unless the agreement provides otherwise) for the stamp duties that must be applied to the purchase agreement and related documents. These are paid to the Inland Revenue (i.e. the Cyprus Tax Department).
The stamp duty must be paid within 30 days from the date of the purchase agreement.
Stamp Duty Rates
Property Value (€) | Stamp Duty Rate |
Up to €5,000 | 0% |
€5,001 – €170,000 | 0.15% |
Above €170,000 | 0.20% |
It is noted that the maximum stamp duty paid is €20,000.
Example Calculation for Property at €750,000:
- €5,000 x 0% = €0
- €165,000 x 0.15% = €247.5
- €580,000 x 0.2% = €1,160
- Total Stamp Duty = €1,407.5
Capital Gains Tax (CGT)
Capital gains tax (CGT) in Cyprus applies to gains realised on the sale of real estate located in Cyprus or shares in companies with significant holdings of real estate in Cyprus. The CGT rate is set at 20%, which is applied to the taxable gain, calculated by deducting allowable expenses from the sale price. These may include:
- Transfer fees paid at the time of purchase,
- Costs of renovation or improvement (provided they are duly documented and approved),
- Estate agent’s fees (only if paid to a licensed estate agent),
- Legal expenses incurred during the sale.
Lifetime Allowances
Under Cypriot law, individuals (and not Cypriot companies) have access to certain lifetime allowances that reduce their taxable profit and therefore their CGT liability. It is important to note that each allowance only applies once per individual, but any unused amount can be carried forward to a future sale if not fully utilised in a single transaction. These include:
- General Allowance: Individuals are entitled to a tax-free allowance of €17,086 on any property sale. This allowance applies to each person and is often used in cases where the property does not qualify as a primary residence.
- Primary Residence Allowance: For individuals selling their primary residence, an increased allowance of €85,430 is available. To qualify, the property must have served as the individual’s main residence for at least five years. Substantial documentation (such as utility bills or official residence records) is required to claim this exemption.
- Agricultural Land Allowance: For registered farmers, an additional allowance of €25,629 applies to the sale of agricultural land used in farming activities.
Allowance Type | Allowance | Eligibility Conditions |
General Allowance | €17,086 | Available to each individual for any property sale |
Primary Residence Allowance | €85,430 | Available if the property has been the primary residence for at least 5 years |
Agricultural Land (Farmers Only) | €25,629 | Available to registered farmers for the sale of agricultural land |
Example Calculation of CGT with Allowances
Consider a scenario where an individual sells their primary residence and meets the conditions for the €85,430 primary residence allowance:
- Original Purchase Price: €250,000 (acquired January 1, 2000)
- Adjusted Purchase Price: €250,000 adjusted for inflation (using a factor of 1.49, as of April 2024), results in: 250,000 x 1.49 = 372,500
- Sale Price: €450,000
- Taxable Gain: After deducting the adjusted purchase price, the gain is:
450,000 – 372,500 = €77,500
- Primary Residence Allowance: Applying the €85,430 primary residence allowance, the gain is fully covered, resulting in no CGT liability.
If, however, the property was not a primary residence, only the general allowance of €17,086 could be applied, resulting in a taxable gain of:
77,500 – 17,086 = 69,414 x 20% = €12,082.80
For more information on Capital Gains Tax click here.
Key Differences for Companies vs. Individual Buyers
Unlike individuals, companies face a separate set of tax obligations when they purchase property in Cyprus. More specifically, while individuals can benefit from reduced VAT rates (5%) and several capital gains tax (CGT) lifetime allowances, corporate buyers are generally subject to stricter requirements:
- No Reduced VAT: Companies do not qualify for the 5% VAT rate, and must pay the standard 19%.
- Limited CGT Allowances: Companies are generally subject to full CGT without access to the personal lifetime allowances.
Conclusion: Expert Guidance for Optimal Tax Efficiency
At Polycarpos Philippou & Associates LLC, we understand that every property transaction in Cyprus presents unique tax challenges and opportunities. From understanding VAT reductions to maximizing CGT allowances, our legal team is dedicated to providing the clarity and expertise you need to optimize your investments and ensure compliance with Cyprus’ property tax laws.
Whether you are an individual buyer seeking a primary residence or a company investing in Cyprus’ thriving real estate market, we are here to support you at every step. Contact us today to schedule a consultation and learn how we can help you navigate the complexities of Cyprus property taxes with confidence and efficiency.